Net Income Calculator

Net income is what is left after every cost a dollar of revenue or wages has to cover. For an employee, it is gross wages minus federal income tax, FICA (Social Security and Medicare), state tax, and any pretax or posttax payroll deductions, so it is the number that actually lands in your bank account. For a business, it is the bottom line of the income statement: revenue minus cost of goods sold (COGS), minus operating expenses, minus interest, minus depreciation and amortization, minus taxes. For a 1099 contractor it sits between the two: gross self-employment income minus business expenses, then minus self-employment tax, federal tax, and state tax. In every case the formula is the same shape, gross MINUS all expenses and taxes equals net.

The big structural gap is self-employment tax. A W-2 employee pays 7.65% in FICA (6.2% Social Security plus 1.45% Medicare) and the employer matches that 7.65%, so the IRS collects 15.3% total but you only see half on your paystub. A 1099 contractor pays both halves themselves as self-employment tax on Schedule SE: 15.3% on 92.35% of net self-employment earnings (the 0.9235 factor backs out the employer-side FICA the contractor is effectively paying for themselves). On top of that, 1099 workers have to make their own quarterly estimated tax payments because no withholding happens automatically. The upside is that 1099 contractors can deduct legitimate business expenses (home office, mileage, equipment, software) right off the top before any tax is calculated; W-2 employees cannot deduct unreimbursed business expenses through tax year 2026 under the TCJA suspension.

A multi-step income statement walks revenue down to net income through a fixed sequence. Start with revenue, subtract COGS to get gross profit, subtract operating expenses (salaries, rent, marketing, software, insurance) to get operating income, subtract depreciation and amortization to get EBIT, subtract interest expense to get pre-tax income, then subtract tax (usually the 21% US federal corporate rate, ignoring state corporate tax which varies) to land on net income. Net income is the only line that flows from the income statement into retained earnings on the balance sheet, which is why analysts call it the bottom line. If net income is negative the company posted a net loss for the period, which reduces retained earnings and signals that revenue did not cover the full cost structure.

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is calculated by taking operating income and adding back depreciation and amortization (which are non-cash accounting charges), so it is an approximation of pre-tax cash from operations before financing costs. Net income subtracts all four (interest, taxes, depreciation, and amortization) on the way down the income statement. EBITDA runs higher than net income any time a company carries debt (interest expense), pays tax, or owns long-lived assets being depreciated. Investors use EBITDA as a proxy for operating cash generation that lets you compare companies with different capital structures and tax situations on an apples-to-apples basis. Critics (most famously Warren Buffett and Charlie Munger) push back that depreciation is a real cost because the assets eventually have to be replaced, so EBITDA can flatter capital-intensive businesses.

The biggest pretax levers for a W-2 employee are 401(k) and HSA contributions. The 2026 401(k) elective deferral limit is $24,500, with an $8,000 catch-up for workers age 50-59 and 64+, and an $11,250 catch-up for workers age 60-63. The HSA limit is $4,400 self-only or $8,750 family, with a $1,000 catch-up at age 55+. Every dollar you defer into either account skips federal income tax and, in the case of HSA payroll contributions, also skips FICA. A Traditional IRA can shelter another $7,500 ($8,600 at 50+), subject to MAGI phaseouts when you or a spouse have a workplace plan. Pretax health, dental, vision, and FSA contributions also drop your taxable wages directly. The pattern that maximizes net is: get the full employer 401(k) match first, max the HSA (triple-tax-advantaged in, growth, and qualified withdrawals), then fill remaining 401(k) space, then a Traditional or Roth IRA depending on your bracket.